Payment by results 'seriously flawed', says charity sector

A government initiative to improve public services has been labeled as “seriously flawed” by the third sector.

A report, commissioned by the National Council for Voluntary Organisations (NCVO), found the payment by results (PBR) mechanism in contracts to have “suffered from crude implementation” which has led to missed opportunities to improve public services.

Under PBR, elements of the payment for public service contracts are made once the work agreed has been completed.

The study found general support for PBR as a concept, but some charities believe PBR contracts have been brought in by commissioners as they are “political flavour of the month” rather than as part of a coherent strategy to improve services.

It added excessive use of PBR could “push charities who cannot bear the risk level out of public service provision, with their expertise lost to the service users who would benefit from it”.

Other findings showed contracts contained targets that were either “irrelevant or detrimental to the desired outcomes”, and failed to account for the complex nature of the services they were for.

Sir Stuart Etherington, chief executive of the NCVO, said: “Implementing PBR effectively requires intelligent thought and carefully crafted incentives, but many PBR contracts fall well short of this. Crudely designed targets and contracts risk pushing expert voluntary sector providers out of public service provision.

“Paying public service providers for the outcomes they achieve rather than the activity they undertake is a worthwhile principle. Charities have an important role to play in improving public services, but commissioners must work with them in order to design effective contracts.”

The report’s author, David Hunter, a lawyer at charity specialist Bates Wells Braithwaite, added: “We have seen a steady increase in charities seeking legal advice because of problems in PBR contracts. As PBR proliferates as a payment mechanism, it’s crucial that commissioners seek input from providers and service users on realistic targets and contractual terms at the very start of the process. Poor contracts are detrimental to all parties, not only the service providers and service users, but also the commissioners themselves ultimately.”